As hedge fund managers stockpiled gold over the past three
years, its price skyrocketed. So when the precious metal
suddenly fell about 8 percent in late September, it came as
little surprise that hedge funds were behind the move. During
the last week of the month, hedge funds and other nonbank
speculators sold 22 percent of their gold holdings, amounting
to about $6 billion, according to Bank of America's weekly
hedge fund report.
The need to raise cash by funds suddenly facing huge losses
elsewhere apparently led to the selling, as did the surge in
the dollar, which trades inversely to gold. The price dip made
investors wonder if hedge funds have too much exposure to the
yellow metal ¬- and if that could carry systemic risk
should gold prices plummet.
John Paulson, the world's leading goldbug and manager of the
third-largest hedge fund firm in the U.S.,...